The Palm Bonuses Depend on Diversity

Attracting ethnically diverse customers and workers leads to bonuses at the high-end restaurant chain.

By David Farkas, Senior Editor -- Chain Leader, 8/20/2008 12:43:00 PM

The Palm gives bonuses to managers who hire women and people of color, and reduce gender and race-related complaints from workers.

Few restaurant companies tie unit-level bonuses exclusively to profits. Making managers focus solely on controllables can deprive customers of the extras that turn them into regulars. Until fairly recently, however, Washington, D.C.-based Palm Management Group's incentive program did just that.

When company leadership changed two years ago, the bonus structure changed with it. Managers were incented more for boosting sales (60 percent of the bonus) than profits (40 percent).

Then in January the 28-unit steakhouse chain added an unconventional twist to its incentive program by introducing a diversity component. Today, 10 percent of a management team's bonus is the result of how much the unit has increased market share in new demographic groups, kept a diverse employee base, and trimmed staff complaints relating to racial, ethnic or gender issues. Profits are now 30 percent.

Vice President of Human Resources Betsy Mercado, who came up with the plan, estimates the diversity bonus could run as high as $10,000 per restaurant if that unit "really hit on all categories," including sales and profits. Yet given the slowdown in consumer spending, which has bludgeoned sales at tony chains like The Palm, with a check average of $77, reaching that sum is unlikely this year, she says.

In Total Control

Instead, Mercado says nearly all bonus dollars will be the consequence of diversity efforts, which restaurant managers administer on their own. "The new plan is not reflective of the economy. It's reflective of [the management team's] hard work and it's completely in their control," she declares.

Diversity efforts are not new at The Palm. Like other restaurant chains, the company abides by U.S. Equal Employment Opportunity Commission regulations and provides sexual-harassment training to managers. "We've been making sure we've been doing the right things from the hiring side," says Mercado, an HR specialist who joined Palm Management six years ago from the telecommunications industry.

Since early 2007, the company has been holding managers accountable for bringing in minority customers. "We are constantly preaching community outreach," Mercado says, conceding that managers successful at it were not rewarded.

Late last year, however, she and other executives decided to pay managers for increasing market share and keeping turnover low and productivity high in their restaurants. Part of the reason: sales and traffic declines throughout the system.

The idea is nonetheless a good one, says Multicultural Foodservice & Hospitality Alliance President Gerald A. Fernandez, who has been a guest speaker at Palm general-managers meetings. "Companies that tie diversity progress to compensation really get results," he says. "We measure everything else, why not diversity progress?"

Customer Targets

Although Palm officials did not set a numerical goal, managers that post market share gains among ethnically diverse groups qualify for the bonus. They are getting help from the chain's 837 Club, a membership program that Palm marketers have mined for customer data.

That information is clueing managers into whom they should reach. "In Houston, the manager supports the Asian Chamber of Commerce," Mercado says. "And in Los Angeles there is a big demand for our support from the gay and lesbian community."

Although the company wants managers to get more customers to join the 837 Club, it also wants them to keep employee turnover low and workers productive. An annual employee-satisfaction survey includes five questions about diversity efforts at their restaurant. "The internal goal is increase worker productivity, employee satisfaction and engagement," Mercado says.

That effort could help increase market share, too. Philadelphia-based diversity consultant and executive recruiter LaMonte Owens says, "When I go out, I look to see how many minorities are providing me service. I think that mere fact of that visibility when black people go there will allow them to know everything is all right."

MORE:
For more compensation trends, including a salary survey of restaurant chain positions from dishwasher to chairman, visit "New Parameters for Payday."

For a look at how Darden Restaurants' employee networks offer mentors and help the company better understand its minority employees and customers, visit "Group Dynamics."